ACC 326 Study Guide - Midterm Guide: Futures Contract, Tax Deduction, Employee Stock Option

41 views2 pages
31 May 2017
School
Department
Course
Professor
Derivatives
- Positives: derivatives allow for a reduction of risk through hedging
- Negatives: risk can increase by using derivatives
- Recognize derivatives to:
oI/S if tis FV hedge
oComprehensive Income if its CF hedge
oI/S if its not a hedge
- If a derivative is not a hedge, value at FV on the B/S and gain loss on I/S
- If it’s a FV hedge  derivative at FV on BS and changes in FV on the IS OR Mark corresponding
item being hedged to FV and changes in FV on the IS
- If it’s a CF hedge  do the derivative at FV on the balance sheet and changes in FV in
comprehensive income
FAIR VALUE HEDGES
- Accounting:
1. Record at fair value
2. Gains and losses accounted for as derivative, recognized in current earnings and switch the
inventory from cost to FV
- Put options put floors on what they can lose in regards to the sales price
- Do not tax event until the position is liquidated
Income Tax Expense
DTL
- When we sell
Income Tax Payable
DTL
DTA
CASH FLOW HEDGES
- Record derivative at fair value and report gain/loss in other comprehensive income
- Eneter a futures contract to lock in the price of a good
- If the hedge is effective then it is between the 80-125% range
- Anticipates transaction cannot have a FV hedge
- Firm Commitment cannot have CF hedge
Compound Financial Instruments
1. Callable Deby
2. Reedemable Debt
3. Convertible Debt
4. Debt with non-detachable warrants
5. Convertible debt with cash settlement option
6. Debt with detachable warrants
- 1-4 don’t bifurcate; 5 and 6 must be bifurcated
- 5 does HCA while 6 can do HCA or FV Option on Debt
Stock Based Compensation
- Stock based comp is awarded at FV in either restricted stock units OR stock options
- We use straight line in this class
- If itsequity settled then it goes to equity and do FV of grant
oIncentive stock options do not tax the employee
find more resources at oneclass.com
find more resources at oneclass.com
Unlock document

This preview shows half of the first page of the document.
Unlock all 2 pages and 3 million more documents.

Already have an account? Log in

Get OneClass Grade+

Unlimited access to all notes and study guides.

Grade+All Inclusive
$10 USD/m
You will be charged $120 USD upfront and auto renewed at the end of each cycle. You may cancel anytime under Payment Settings. For more information, see our Terms and Privacy.
Payments are encrypted using 256-bit SSL. Powered by Stripe.